THE FRAGILE FIVE: Here's What's Happening In The Five Emerging Markets Causing Chaos In World Markets

Last year Morgan Stanley declared the Brazilian real, the
Indonesian rupiah, the South African rand, the Indian rupee, and
the Turkish lira
as the "Fragile Five."

These were the troubled emerging market currencies under the most
pressure against the U.S. dollar. And each of these has a
significant current account deficit problem.

Speaking to Business Insider's Joe Weisenthal at Davos, economist
Nouriel Roubini said "there is a layer of political
uncertainty, with the "Fragile Five" having parliamentary or
presidential elections: India, Indonesia, Turkey, Brazil, South
Africa."

Here's a quick reminder of the Fragile Five and what to watch for
there.

Brazil real

The real is down over 15% against the USD in the past
year. Brazil has a current account deficit of 3.59% of GDP.

Speaking in London, Brazil's central bank president Alexandre
Tombini said policymakers would fight inflation in a statement
that was more hawkish than some had expected. The central bank
has already raised its Selic rate seven consecutive times to
10.5% to clamp down on inflation.

"The Brazilian response has been very classic – tightening
policy, using foreign reserves as buffers,"
Tombini told the Financial Times. "Other countries will have
to follow suit . . . some may be reluctant."

Brazil will see presidential, general and local elections in the
fourth quarter of 2013.

Indian rupee

The rupee is down some 14% against the USD in the past year.
India has a current account deficit of 4.37% of GDP.

India's wholesale price inflation has been cooling but the
slowdown in food prices could be temporary. Meanwhile, consumer
prices are still high at 9.87%. WPI
doesn't factor in the cost of services and because it
accounts for prices at the wholesale level it doesn't measure
prices as they trickle down to the consumer.

But the downward trend in inflation does give the Reserve Bank of
India room to keep interest rates on hold, even as the government
tries to curb expenditures, in an election year, as it tries to
rein in its fiscal deficit.

India sees general elections in May. There is some concern that
no matter which party is voted into power, it will have to form a
coalition with smaller parties and some states will continue to
be controlled by opposition parties and that too could stall
reform.

Indonesian rupiah

The rupiah was the worst performing emerging market currency in
2013 and is down 21% against the USD in the past year. Indonesia
has a current account deficit of 3.71% of GDP.

Some expect that the rupiah will strengthen in the second half of
this year after its presidential elections on July 9. The country
has seen some unrest following fuel price hikes.

The central bank kept its key rate unchanged in January after
raising it 175 basis points since early June. While Indonesia is
worried about its current account deficit, it is unlikely to
raise rates on account of inflation which it expects will ease to
its target range this year.

Turkish lira

The lira is down 24% against the USD in the past year. Turkey has
a current account deficit of 7.22% of GDP.

The lira has been getting punished on the back of a corruption
scandal threatening prime minister Tayyip Erdogan and the ruling
AKP party. But Turkey also has a current account deficit and
unsustainable construction fueled economic growth.

The central bank has called for an emergency meeting and some are
anticipating that it will raise rates to help bolster the
currency. But economists warn that any reprieve could be
temporary.

Turkey sees municipal elections in March and a presidential
election in August.

South African rand

The rand is down over 19% against the USD in the past year. South
Africa has a current account deficit of 6.8% of GDP.

Like the other countries on this list the rand is weighed down by
South Africa's current account deficit (CAD) and a rising real
effective exchange rate (REER) which is expected to worsen CAD
concerns.

The rand is also more vulnerable to a slowdown in China and the
impact that it could have on commodity prices, specifically
industrial metals. In South Africa, we saw wildcat protests to
raise the wages of the lowest-paid miners so they were growing
faster than inflation.

South Africa has notoriously kept its interest rate unchanged
since
July 2012.